Macri takes on labor reform

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Wednesday, January 3, 2018

After getting a pension bill and a tax bill through congress at the end of last year, Argentina's government now shifts its focus to labor reform.

A reform bill was submitted to the senate in November but will unlikely be debated until either a special session in February or in March after the legislative recess is over.

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Among the key aims of the draft legislation are bringing more workers into the formal sector and reducing the cost of hiring. The bill states employers will have 360 days to formally register workers once legislation comes into force, a period in which certain amnesty privileges will be granted.

In a written statement to congress in November, President Mauricio Macri referred to an "asphyxiating" regulatory environment that has limited the potential of the country's workers and employers.

The bill also contains measures in the areas of youth employment and training and professional development.

In a report, rating agency Moody's said that high labor costs "have restricted formal job growth."

Support of the country's unions and wide backing in congress will be vital to pass the bill and avoid a repeat of the violent protests seen when the pension bill was being debated.

Last year the government reached a preliminary agreement with the main unions, which covered areas such as redundancy payments. Union eyes will be on measures that may weaken workers' rights.

TAX REFORM

The labor bill is part of a series of reforms the government is working on.

"Macri's launch of ambitious tax and pension reforms immediately following his party's mid-term electoral victory in October 22 underscores his commitment to shore up GDP growth and reduce the country's significant fiscal deficit and inflation," María Luisa Cánovas, a partner at global law firm Jones Day, told BNamericas.

The last major piece of draft legislation to be approved was the tax reform bill. The bill was introduced as part of wider efforts to strengthen the economy and tackle poverty.

Hernán Kogan, a tax analyst at Dutch consultancy TMF Group's Argentina office, told BNamericas: "This reform reduces some of the distorting taxes, taxes the financial income obtained by individuals and modifies the excise duties scheme on specific items. It also reduces the costs of employers by stating a minimum deductible amount for the calculation of the social security contributions, which will be increased gradually during the next five years.

"Among other changes, it also reduces the corporate income tax rate to 25% (the one in force is 35%), except if there is a distribution of profits or dividends, it states an advance reimbursement scheme of VAT credits for long term investments, and makes changes on the tax system applicable to real estate transactions made by individuals."

It also address the issue of tax system complexity. Last year treasury minister Nicolás Dujovne said the system was 'Kafkaesque.'

Kogan said: "As noted in TMF Group's first Financial Complexity Index (FCI 2017), Argentina is one of the most complex jurisdictions in the world for tax and accounting compliance. This tax reform is aligned with the efforts that Macri's administration is carrying out to revert such situation and position Argentina as a more competitive country for attracting business and foreign investments."